Narayana Murthy says don’t pay CEO too much salary; wants balance of power between management, board

Infosys co-founder Narayana Murthy today pitched for a fair balance of power in companies, between the CEO and management, and the board of directors, to check scams and frauds, and to ensure that corporate resources are misused to gain personal riches. Narayana Murthy said that the managerial remuneration has to be a fair multiple of the compensation of the lowest level employee in the company. As an example, if the lowest paid employee’s remuneration was Rs 2-3 lakh a year, the CEO remuneration should be Rs 70-80 lakhs, Narayana Murthy added.

Balance of power

Expressing concerns about board governance in India, Narayana Murthy further said that paying large severance packages to buy the silence of outgoing executives must be prevented by the board. He said that in professionally managed companies, the management can push weak boards to extract unjustifiable compensation for themselves and use the company’s resources for personal benefits. Whereas the owner-managers can use listed companies to enrich their private companies, he said, speaking at the 47th National Management Convention (NMC) of All India Management Association (AIMA).

How scams happen

Narayana Murthy, the billionaire Indian software entrepreneur, said that the main source of corporate scams is the moral weakness and incompetence of the chairman of the board in the companies where scams happen. He also argued that when the CEO becomes more powerful than the board and the chairman operates at the pleasure of the CEO, then such things happen. Listing out the biggest challenge in corporate governance, he pointed out the agency cost, which is the cost incurred by management to meet the shareholders’ objectives.

Repercussions of wrongdoings

Narayana Murthy insisted that 100 per cent fee received by board members and the remuneration received by the management for the period of wrongdoing should be taken back, and SEBI should impose penalties on boards for not doing their job. He also expressed his favour in showing full details of the investigation on the website of the company so that every shareholder has access to it.

Protecting whistleblowers

Though whistleblowers have been given legal protection, they still face harassment and social stigma. Narayana Murthy said that there should be adequate safeguards against bosses’ vendetta against whistleblowers. However, he added that no whistleblower has the right to harm an organisation on which a large number of families depend for their livelihood.